OECD urges work expense crackdown

Tax should be withheld from capital gains, rental properties and business owners to lift compliance and generate revenue, the OECD says. It urged the government to make a crackdown on work expense claims a priority for the October tax forum, and said goods and services tax reform was a “prerequisite" to reforming inefficient state taxes.

Bankers, insurers, property developers and academics also urged the government to scrap inefficient state taxes such as stamp duties on property and insurance, and replace them with broader-based taxes on land and payrolls. A 25 per cent corporate tax, a board for the Tax Office with private-sector members, and tax breaks for infrastructure were also among reforms proposed in wish-lists for the tax forum, released yesterday.

Treasurer
Wayne Swan
played down the chances of any expensive reforms as a result of the forum. “Suggesting a certain tax be reduced or abolished is easy. The hard part is figuring out how it will be funded. This government certainly won’t be doing anything that threatens Australia’s strong budget position," he said yesterday.

The Organisation for Economic Co-operation and Development noted its proposal to expand mandatory withholding would be revenue generating.

“Around 40 per cent of assessable personal income is not subject [to] systematic reporting to the ATO, seriously impacting the level of compliance achieved in practice," the OECD’s centre for tax policy adviser Richard Highfield said.

The Committee for Economic Development of Australia called for a sovereign wealth fund to “offset the temporary but totally disrupting effects of the commodities boom".

Prime Minister
Julia Gillard
recently dismissed the need for a wealth fund, repeating the federal government’s line that Australia’s trillion-dollar superannuation system made such a fund unnecessary.

CEDA warned of the “Dutch disease" brought on by the strong terms of trade, triggering a need for policies to counter the “massive disruption to the Australian economy" by the resources boom.

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chairman Raymond Horsburgh said the Australian Taxation Office should provide binding advice to companies on a “real-time" basis, as a way to improve tax administration.

“To the extent that available resources within the ATO is a limiting factor, a reasonable application fee for the advice is an alternative that may be explored."

His submission also proposed tax exemptions for private sector infrastructure development as a way to stimulate investment.

Mr Horsburgh did not support congestion levies, saying they only “punish motorists" for “chronic" under-investment by state governments in infrastructure.

But Infrastructure Partnerships Australia’s Brendon Lyon said the forum should debate a national user-pays road pricing scheme to replace the “current fragmented and inconsistent system of transport and road taxes", a plan he said would be revenue neutral.

Truckers said existing road charging was flawed and proposed a new fuel-based model. The Federal Chamber of Automotive Industries urged the abolition of the luxury car tax, which it labelled an “inefficient, punitive and poorly designed tax" that distorted the car market.

The National Farmers’ Federation said tax rebates needed to be overhauled to remove the “significant bias against country living" and extended to businesses.

Reform of state taxes was a common theme. University of NSW tax professor Neil Warren said states would not reform their systems unless given an incentive.

A framework to allocate reform benefits to the states and the interaction of grants and state policies needed attention, he said.

The Insurance Council agreed and “will be advocating that property- based conveyances be replaced by improved land tax arrangements".

Australian Bankers’ Association chief executive Tony Burke also backed state tax reform, noting that of the $9.8 billion lent for owner- occupied housing last year, $355 million went to fund stamp duty.

The ABA also said three reforms were needed to bolster the stability of the financial system: tax exemptions for deposit accounts, and interest withholding tax exemptions for non-residents on retail accounts and on wholesale borrowings.

It noted that spreads on international borrowings were “trending to levels experienced at the height of the global financial crisis".